It’s almost gospel in the mobile tech media and among mobile enthusiasts that Apple reports the actual number of iPads, iPhones (and Macs and iPods) it sells directly to consumers during each quarter in its earnings reports. Those numbers are often used disparagingly against other mobile companies when third-party market research firms like IDC report shipment estimates. Still, it’s difficult to get a totally accurate picture of the market; we’ve struggled with it here along with everyone else.

The most common interpretation is that Apple is being open about its shipment totals while its competitors are too shy or scared to share their actual sales numbers. The latter is partly true: Samsung and Amazon, for example, two of the most prominent Android device vendors, famously refuse to share either shipment or sales totals in their quarterly results. There are no legal requirements that companies do so. But that secrecy can be used to imply that Samsung or Microsoft or ZTE or whomever are “channel stuffing,” which is retail lingo for shipping a bunch of products to a distributor even if a business can’t or won’t sell them, just to make it look like there’s demand for its product.

But in this case, it’s not quite that simple.

Apple’s “sold” numbers are really its shipment numbers, according to several prominent financial analysts who obsessively follow every word and number that emerges from Cupertino. Horace Dediu, who writes the Asymco blog, told me that “Apple’s reports show shipments not sales.” He added, “All vendors as far as I know report shipment data since that is what they can record.” He has written about the nuances of what being “sold” actually means as well.

When is a sale a sale?

An Apple store in China.

An Apple spokesman pointed me to the company’s earnings statements. Here’s what it says about how it recognizes revenue from the sale of a product:

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. Product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped. For online sales to individuals, for some sales to education customers in the U.S., and for certain other sales, the Company defers revenue until the customer receives the product because the Company retains a portion of the risk of loss on these sales during transit.

Apple is certainly different from companies like Samsung: it has a pretty enviable outlet through which to hawk its own products. There are a little over 400 Apple Stores worldwide and they, along with Apple’s own website, do a lot of the heavy lifting when it comes to getting Apple products in the hands of customers. And products sold through Apple’s retail channels are indeed products sold directly to customers.

But Apple doesn’t only sell direct: it has retail partners too. We’re talking about big companies like Best Buy, Walmart, Target, to name just a few, and mobile carriers worldwide. Note that in Apple’s most recent earnings release, it reported $5.2 billion in net sales through its retail channel, but about $38 billion in net sales through all of its geographic regions, which represent the location of customers when they purchased products.

When Apple says it sold 37.5 million iPhones and 19.5 million iPads, as it did in its second fiscal quarter press release, this is often interpreted as Apple declaring that 37.5 million iPhones and 19.5 million iPads have been purchased and are currently in purses, pockets, backpacks and briefcases somewhere. But Apple, as several financial analysts pointed out, reports something called “channel inventory too,” which it announces during those same earnings calls.

“Their reported numbers are ‘sell in,’” Toni Sacconaghi, research analyst who follows Apple for Bernstein & Co., said. That number includes product sales to retail partners. “They typically state during their earnings call how much channel inventory changed in the quarter, allowing one to compute to sell out units for both iPhone and iPad.”

The “channel” is its collection of retail partners, which have grown steadily over the years to include retail powerhouses like Walmart and Best Buy. Apple knows how many iPhones and iPads it sent to AT&T or to Best Buy — during the most recent earnings call, CFO Peter Oppenheimer noted the company had “11.6 million iPhones in channel inventory, a sequential increase of about 1 million iPhones” during the quarter. Apple also said it had about “four to six weeks of channel inventory.” That means it takes about four to six weeks for its inventory going to retailers to sell out.

Making it count

But Apple has already marked those 11.6 million iPhones as “sold,” since the company has transfered the product to its retail partners, in this case the “customer” as outlined in the revenue recognition criteria above. Therefore, to understand the bigger picture of how Apple is doing versus its competition, it’s best to count those 37.5 million iPhones as “shipped:” Apple doesn’t technically know if all 11.6 million iPhones sold to retail partners have actually been sold to end users, and for the purposes of recording a sale, it doesn’t care.

Obviously Apple doesn’t want iPhones or iPads piling up on store shelves, and there is certainly no reason to believe that is actually happening. It’s a good indication to Apple whether those products sold based on how often the retailer partner reorders products. So while demand for Apple products remains pretty high, automatically assuming that Apple sold all 37.5 million iPhones to actual people during that three-month period is wrong.

It seems like a small thing, but it is important to keep in mind when evaluating the mobile market, especially as it matures and multiple sales channels are employed. In order to present the clearest possible picture of how demand for Apple’s products stands in relation to its competitors, we will be referring to Apple’s announced numbers as “shipped” from now on.

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Microsoft VP Tami Reller told the Financial Times that “key aspects of the software will be changed when Microsoft updates the OS this year.  She referred to “difficulties” many users have had with the software. “The learning curve is definitely real,” she told the FT.

The story set off a flurry of comments and speculation as to what the changes will be and comparisons to Coca-Cola’s “New Coke-Classic Coke” fiasco.

As GigaOM’s Tom Krazit wrote in February, Windows 8 was one of the company’s most important launches in years — it represented a huge attempt by the company to make its OS relevant on tablets where Apple’s iPad was eating Microsoft’s lunch.  That move was represented by its “radically overhauled Metro user interface”  borrowed from the latest Windows Phone. It’s a touch friendly look and feel that was, and still is, alien to many Windows desktop users.

A huge re-do now will no doubt turn up the heat on Microsoft CEO Steve Ballmer, who has been the subject of considerable negative press over the past few years. But it’s really unclear just what changes will be made. Many folks will immediately assume that Microsoft will nuke the Metro interface in favor of classic windows to get the installed base over the hump. Far more likely is it will offer a choice of interfaces.

Here’s the thing: When it comes to radical change that consumers may demand, Microsoft is damned if it does, damned if it doesn’t. The cool Metro interface won good reviews on the smart phone but was seen as way too much of a change for Windows-savvy workers who’ve been on the platform for ten or 20 years.

For that huge installed base, change is not a good thing. It’ll be interesting to see how Microsoft navigates this tricky course. For it’s part, Microsoft suggests that Windows 8 sales aren’t hurting. On Tuesday, Reller noted on the Windows blog that 100 million licenses have been sold, which is on par with the copmany’s prior Windows 7 launch.

Update: A Microsoft spokeswoman contacted for comment responded via email:  “It is unfortunate that the Financial Times did not accurately represent the content or the context of our conversation about the good response to date on Windows 8 and the positive opportunities ahead on both Windows 8 and Windows Blue.” And she referred to the aforementioned blog.

This story was updated at 11:32 a.m. PDT with Microsoft comment.

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Apple is still the world’s largest tablet seller; it shipped 19.5 million in the last quarter, up from 11.8 million the same quarter a year ago, according to IDC and its own numbers released earlier this month. That’s an increase of 64 percent. Its No. 1 mobile competitor, Samsung, saw its shipments grow even faster, from 2.3 million tablets a year ago to 8.8 million in the latest quarter. Rounding out the Top 5, Asus and Amazon also more than doubled their tablet shipments from a year ago. Microsoft, which did not start selling tablets until October 2012, shipped 900,000 Surface units between January and March.

The overall growth in tablets means Android is now the most popular mobile OS in tablets shipped during the quarter; a year ago it was on 8 million of tablets shipped worldwide, compared to the 11.8 million iPads. This past quarter saw Android shipped on 27.8 million tablets that were shipped and 19.5 million iPads and iPad minis.

All this does not mean doom and gloom for the iPad. Apple’s tablet sales continue at a rapid clip, increasing every quarter – faster than the iPhone right now. And while its overall share of tablet shipments may be slipping, it’s still selling more than double the number of tablets each quarter as its closest competitor, Samsung (see chart below).

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According to Bloomberg:

Cirrus will record a net inventory reserve of $23.3 million for the fiscal fourth quarter, which ended in March, the Austin, Texas-based company said in a statement yesterday. Most of that — $20.7 million — is from a high-volume product from one customer, Cirrus said, without naming the client.

Bloomberg reports that the unnamed client is Apple, and that 90 percent of Cirrus Logic’s revenues come from selling audio chips that Apple puts inside of iPhones and iPads. If Cirrus Logic has huge amounts of unsold inventory, the thinking is that it’s because Apple had no need for them — that it possibly overestimated the number of iPhones and iPads it was able to sell during the first three months of 2013.

Even if that’s true, there’s more than one possible explanation for Cirrus Logic’s excess supply of chips. Apple could have switched providers of those chips, for instance. Apple CEO Tim Cook warned when similar negative supplier reports caused a massive freakout among investors a week before earnings last quarter: “I’d stress that even if a particular data point were factual, it would be impossible to interpret [the meaning] for our overall business. Yields can vary, supplier performance can vary … there’s an inordinately long list of things that would make any single data point not a great proxy for what’s going on.”

And here we are again, a week from Apple reporting its fiscal second quarter earnings, which will take place April 23. The signs that this isn’t going to be a blowout quarter are there: Apple had no major new product introductions between January and March, and it might also be drawing down production on some models of iPhones and iPads as it may be preparing for new devices this summer.

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Hopscotch is an object-oriented programming language that is purposely bright, colorful and welcoming to kids between ages 8 and 12. Rather than making young people wade through incomprehensible strings of words and numbers, writing code in Hopscotch consists of dragging and dropping different objects and running scripts on them. The objects are cutesy animal characters, and scripts can be selected from drop-down menus. The result is that kids can make short animations and games.

An example of the kind of characters to choose from in Hopscotch.

iPads are looked at by a lot of educators as ideal tools because they’re easy for kids to use and they’re so much less expensive than full-fledged computers. Hopscotch is in good company when it comes to teaching programming on Apple’s tablet: Codea, which is an iPad programming app that uses the Lua programming language, is an iPad-based coding app for anyone, not just kids. Tynker is another visual programming language that’s similar to Hopscotch; it too relies on kid-friendly objects that can be stacked together like Legos to build programs.

The language powering Hopscotch (like Tynker) is inspired by Scratch, a visual programming language for children developed at MIT. Scratch has been around for several years, although it doesn’t really work on mobile devices. But as Hopscotch co-founder and CEO Jocelyn Leavitt said, “it’s really popular and we really like it.”

Leavitt is a former history teacher, with a special interest in experiential learning methods. She doesn’t code, and that gets to the point of Hopscotch: she and her co-founder, Samantha John, both “wish this existed when we were growing up,” she told me. John taught herself to code after college, and she’s the one who led the engineering effort on Hopscotch.

But both founders want young people — especially girls — to be exposed to these kinds of tools as early in life as possible. The app is absolutely for boys too, but girls are the bigger challenge. Boys may get into programming because they like video games, but that’s not what drives young girls, she thinks. “Girls like creating things.” So they invested a lot of time in the artwork in the app designing characters that are cute, colorful and fun: “It’s something girls will like without being too girly,” Leavitt said.

Hopscotch is iPad only for now and it’s free. Though they haven’t decided on a business model yet, it will probably monetize the app through in-app purchases, like premium art, virtual goods or premium programming tutorials.

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To be sure, I am not saying that Microsoft and Intel are going to go away tomorrow. Their fiscal muscle is enough to put even Popeye to shame. And monopolies (even quasi-monopolies) take forever to fade.

But for the first time they are facing a challenge that is much more profound and broader than they have ever faced in their monopolistic lives: competition and changing tastes. How they deal with these changes is going to write the next chapter of their corporate history.

PC sales horror show

But let’s take a step back. The signs of crumbling came last week when research companies like IDC and Gartner shared data that showed double digit percentage declines in PC sales during the first quarter of 2013. To be sure, the first ninety days of the year are relatively slow for sales of consumer goods, considering that people go on a buying binge during the holiday season, but still a 14 percent year over year decline during the quarter is not something to skim over. It was so bad that even downward trend defying Apple PC sales are expected to head south.

Many media reports blamed the Windows 8 operating system for this debacle, but this is the fourth quarter in a row we have seen PC sales sagging; we can’t blame the new operating system. The reason why media and analysts continue to make that correlation is because we have in the past made that correlation: new Windows equals big PC sales, almost like clockwork every three or four years. Except now it is not true because our relationship with PC (as we knew it) has changed.

The new personal

It has been just about six years since Apple’s iPhone launched and changed our expectations of computers and our relationship with technology. It became more intimate and personal than either Intel or Microsoft had imagined. It wasn’t as that the companies were unaware of mobile phones, or that iPhone was the first smartphone — Nokia and Palm had been selling them for quite a few years — but the iPhone and later Android phones became truly “personal.”

They made us spend less and less time on our PCs. They were always there, and even when the PC sat on the table, the phone in your hand was more fun and easy to use. And then three years ago came the iPad (and later other tablets) to take away even more of our attention from the PC. And when the iPad launched, I knew my PC was going to become less important. The iPad was my slate of imagination.

In the end, an increasing number of people are finding that they don’t need a whiz-bang PC anymore and they don’t need to upgrade because they can do a lot of things on their iPad or Kindle Fire or Samsung Android tablet.

The signs of this change were obvious to anyone who was paying attention. When Apple dropped “computer” from its name, the late (and then chief executive) Steve Jobs pointed out that it was a sign of the times and where the world was going. Here is what I wrote then:

Apple is making the phone do all things a computer does – surf, email, browse, iChat, music and watch videos. Nary a keyboard or mouse in sight, and everything running on OS-X. While I am not suggesting that this replaces our notebooks or desktops for crucial productivity tasks, the iPhone (if it lives up to its hype) is at least going to decrease our dependence on it.

The future is here

Six years later, the world has really changed for the twin gods of the PC. Unlike Apple and Google, who have hitched their bandwagons to wireless devices, Microsoft and Intel are still weighed down by the legacy of their past. I mean, it is hard for Microsoft to look beyond the profits from Windows and Office. It will always look at the future through the lens of those two products. I have been suspect of Intel’s ability to come out ahead as well.

Intel, too, is so married to the idea of selling more expensive PC chips and silicon for servers that it doesn’t know how to readjust its focus and its fiscal models around a world that wants lower priced chips for a different and always shifting market. Since then the world has embraced the little pocket marvels with amazing speed and that in turn has unleashed a new cellphone economics. The mobile chips are getting faster and faster. And thanks to demand that far strips the demand of classic PC devices, they are getting cheaper.

The mobile phone market is so big that it has attracted all sorts of chip makers into the business: Qualcomm, MediaTek and Nvidia are some of the players in the mobile chip business that are relentlessly flooding the market with faster, cheaper and more powerful chips. They are being helped by ARM Holdings, which keeps beefing up its chip technology and expanding its possible uses by focusing on not making chips, but instead licensing chip designs to others like Qualcomm.

Intel has to react to these guys; not to Advanced Micro Devices, the perennial also-ran that was always weighed down with an anemic balance sheet and an inability to compete even when it had better chips. And we all know, Qualcomm is no AMD. MediaTek knows how to play the mobile chip game better than anyone else. What does Intel have to show for its mobile efforts?

Change is hard

A lot of noise – press releases, product releases and a handful of devices. Sorry, but I remain resolute in my belief that the company’s DNA is making this transition to anywhere computing very difficult. That inability to change is reflected in the company’s current dilemma over the chief executive position. In an article this week, The New York Times detailed the likely replacements for outgoing CEO Paul Otellini.

Analysts say the two top contenders to be Intel’s next C.E.O. are Brian Krzanich and David Perlmutter, who are close to Intel’s core business. Mr. Krzanich, Intel’s chief operating officer, oversees its fabrication facilities. Mr. Perlmutter, the chief product officer, oversees chip design. Renee James, the head of Intel’s software group, is considered a more remote chance to run what has long been a hardware company. And Stacy Smith, Intel’s chief financial officer, is well liked inside and outside the company, but like Mr. Otellini, lacks an engineering background, which diminishes his prospects.

Regardless of who becomes the new Intel chief, the problem is that they were all weaned on the classic PC business, one that is changing with the rise of smartphones and tablets and lower power anywhere-computing devices.

That said (and as my wise colleague Kevin Tofel continues to remind me), Intel is doing relatively well with its Atom lineup of chips and he feels it is one of the reasons why Microsoft RT on ARM devices is facing challenges.

The full Windows 8 tablets that run on Atom processors priced at the same price as RT devices (and with the similar battery life) should give Intel some hope. However, their addiction to the PC-style model and hefty margins that come from being almost monopolistic are going to challenge Intel in the future. As I wrote in the past, companies are defined by their corporate DNA and that determines their outcome.

Microsoft too has similar challenges as it grapples with the idea of competition and a world it doesn’t and can’t control anymore. More on that another day, but in closing, I would like to repeat what I said at the start of this piece: the companies that spearhead the talk of disruption and innovation are the ones who are afraid to disrupt themselves.

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On Thursday, Goldman Sachs downgraded Microsoft shares to “Sell” from “Neutral” and Nomura Securities cut its call to “Neutral” from “Buy.” The moves came a day after  IDC called the first quarter of 2013 “the worst quarter” ever, with PC sales down 14 percent from the year-ago quarter. (Gartner numbers were slightly better: it had PC sales only off 11.4 percent year over year for the quarter.)

“At this point, unfortunately, it seems clear that the Windows 8 launch not only didn’t provide a positive boost to the PC market, but appears to have slowed the market,”  Bob O’Donnell, IDC Program Vice President, Clients and Displays said in a statement. (Full IDC statement here.)

Long-time Microsoft watcher Rick Sherlund at Nomura Securities wrote that the combination of “sluggish” Windows 8 adoption and the “lack of compelling new hardware is disappointing with no relief likely” until later this year when Intel releases the new Haswell notebook processor.

As if on cue, the Wall Street Journal (subscription required) reported that Microsoft plans a new 7-inch Surface tablet to come later this year.

Updated: To be fair, for the first quarter, IDC also acknowledged that industry darling Apple also faded. While it did better than the overall U.S. market, IDC said shipments of Apple PCs  slipped 7.5 percent — apparently because more people are opting for iPad tablets as PC replacements.

MSFT data by YCharts

This story was updated at 6:54 a.m. PST with Apple PC share decline.

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The 76.3 million PCs that did ship between January and March this year were down a whopping 14 percent from the same quarter a year ago. It’s leading the analysts at IDC, who have been monitoring the PC market since 1994, to call it “the worst quarter” it’s seen.

And, no, it’s not a blip: it’s the fourth quarter in a row that PC shipments have declined.

The numbers show that people still buy PCs, but not in the quantities of the past. Instead, many people — both businesses and individual consumers — are making the purchase of cheaper, more portable tablets their priority right now.

All the big PC makers are affected. Lenovo, which is the second-largest PC maker by volume, was the only one of the top 5 firms who didn’t see double-digit units sales declines during the quarter — it pulled even with the same quarter a year ago. Not terrible, but certainly not good.

Even Apple, which was able to buck the industry trend of the last year and grow Mac sales until the last quarter of 2012, is seeing its laptop and desktop shipments drop off. IDC doesn’t release global numbers for Apple, but in the U.S. its shipments dropped 7.5 percent from the same quarter a year ago. (However, if you look at data from competing analyst firm Gartner, it shows U.S. Mac shipments on an opposite trajectory during the quarter — up 7.4 percent year over year. The reason for the discrepancy isn’t clear; its PC numbers overall weren’t as far off: down 11 percent versus IDC’s 14 percent.)

What Apple has going for it is its prescience in seeing this shift to smaller mobile computing coming (and of course helping it along). So when people are opting not to buy a more expensive laptop or desktop, it has the iPad to offer.

Apple competitors in the PC business have been slow to adjust to this new reality. And even for those who are trying to offer a good tablet experience, it’s not going that well. Microsoft’s attempt to stanch the bleeding with Windows 8 is faring poorly, IDC says:

“At this point, unfortunately, it seems clear that the Windows 8 launch not only didn’t provide a positive boost to the PC market, but appears to have slowed the market,” said Bob O’Donnell, IDC Program Vice President, Clients and Displays. “While some consumers appreciate the new form factors and touch capabilities of Windows 8, the radical changes to the UI, removal of the familiar Start button and the costs associated with touch PCs have made PCs a less attractive alternative to dedicated tablets and other competitive devices. Microsoft is going to have to make some very tough decisions moving forward if they want to help reinvigorate the PC market.”

This post was updated with details from Gartner’s report at 5:11 p.m. PT.

Image courtesy of Flickr user Alyssa L. Miller via Compfight cc

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On Wednesday, the FT rolled out a new version of its iPad offering that lets readers toggle between a live version of the website and a static view that resembles the morning newspaper. The new “app” also allows readers to clip articles to read later and features a personalized reading history and financial portfolio.

“It’s a much superior second-generation web app based on the latest HMTL5 implementation out there,” said FT.com’s Managing Director, Rob Grimshaw, in a phone interview. He added that it’s only on the iPad for now, but will soon be available on other devices like the iPhone, the Chromebook and Android devices.

While the new version of the web app is nice enough aesthetically (you can see screenshots at right), its real significance remains on a symbolic level. In deciding to bolt Apple altogether last year, the FT took up a vanguard position in the web vs. app debate – standing for the position that improvements in HTML5 means native apps have become unnecessary. Other premium publishers, such as the New York Times and the Wall Street Journal, have so far resisted the FT’s “all-in on web” approach and continue to design apps specifically for Apple and Android devices, and sell them through app stores. (We’ll be digging into the web vs. app debate with three influential publishers at paidContent Live later this month.)

The FT’s decision to quit the app stores meant it would no longer have to fork out a 30% commission to the likes of Apple, but also raised a risk that readers would fail to find the publisher on smartphones and tablets. Grimshaw says this”discoverability” concern is not an issue for major brands, and that the FT’s tablet traffic has actually risen 70% since leaving iTunes.

“If you are a big brand, why not use that? We don’t need Apple or anyone else to say what the FT is,” said Grimshaw.

He did acknowledge that collecting payments from mobile devices are still a challenge for publishers; unlike iTunes, which already has a user’s credit card on file, the web doesn’t offer a quick and easy way for people to pay. Grimshaw added, though, that a solution is coming soon.

“Players like Amazon are opening their payment plan more,” he said. “There’s Amazon, PayPal and one or two others. It’s problem that’s about to get solved.”

For now, Grimshaw says that 15-20 percent of new digital subscriptions are coming via a mobile device and that he expects that number to rise. Like its sister publication, The Economist, the FT has unbundled digital access from its print subscriptions and is offering a variety of price points: a premium online subscription is $8.49 a week while a standard one is $6.25 (Grimshaw says a third of subscribers buy premium); a print and digital subscription is $11.49 while print-only is $7.25.

The FT has become something of a poster child for the idea that news that a bright future in the digital era. It recently announced that it had “crossed over” with its audience, amassing more digital subscribers than print ones. But, as we’ve noted before, the Financial Times‘ distinct audience and product make it more of an outlier than a model that lots of other news publications can replicate.

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China.org.cn has the China Consumers Association’s statement:

In a statement posted on the CCA’s website, Apple Inc. was told to equalize the warranty periods in China compared with other countries. Buyers of iPads, after the company admitted the device is classifiable as a portable computer, are entitled to two-year after-sale service packages for its key components, said the statement.

The major exceptions to Apple’s standard one-year warranty have been established recently: after a couple years of threats and fines, Italy’s consumer protection agency got Apple to start offering two-year warranties for free. The two-year period is actually the law of the land in the European Union, but not all states have taken enforcement as seriously as Italy.

Calls for stronger consumer protection directed at Apple have been a theme in the Chinese state-run media lately. But put in context of the last week, the warranty demand appears to be yet another way for the Chinese government to get under Apple’s skin.

The past week has seen media outlets controlled by the Communist government attack Apple’s device repair and refurbishment policy and then subsequently the company’s response to the criticism.

Even before the wave of media criticism began last week, Apple’s been fighting a lot of different battles in China: the trademark and copyright laws in the country have kept Apple’s lawyers busy, while the working conditions in its suppliers’ Chinese factories have kept it on the defense, both in China and abroad. And meanwhile, the company is trying to make lifelong customers out of the country’s wealthier citizens.

How Apple’s products and brand are portrayed in China — and especially in the media — is incredibly important to Apple’s future: CEO Tim Cook says the company is on track to have China as its No. 1 market one day.

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